Increased prospects for a sizeable fiscal stimulus under the incoming Biden administration appeared to be the key factor driving last week’s gains.

Democrats managed to gain control of the Senate, given the tie-breaking vote by incoming Vice President Kamala Harris. The world was shaken on Wednesday when protestors stormed the U.S Capitol. This assault appeared to unsettle markets, but only modestly.

Economic data were mixed last week. ISM manufacturing rose to its highest level since August 2018, reaching 60.7. The ISM’s services sector gauge also surprised on the upside, hitting 57.2, its highest level in three months. However, the labor market showed signs of a sharp slowdown. Job creation froze in December as restrictions brought on by surging Covid-19 cases hammered virus-sensitive industries, particularly bars and restaurants. Nonfarm payrolls fell by 140,000, below the consensus forecast for 50,000. It was the first monthly drop since April. The unemployment rate was unchanged at 6.7%, compared to a 6.8% estimate.

In Europe, a flash estimate of consumer prices showed that Eurozone inflation fell for a fifth straight month in December, with consumer prices falling 0.3% YoY. However, a core measure excluding food, energy, tobacco, and alcohol showed a 0.2% uptick in inflation, the same as the previous month. In Germany, better-than-expected industrial production and trade figures, and solid factory orders data, hinted that the economy may have expanded in Q4. Industrial output rose 0.9% in the month versus a consensus forecast of 0.7%. Exports grew 2.2%, beating a forecast for 1.0% growth and a monthly increase of 0.8% in October. Imports climbed 4.7%, compared with 0.3% in the previous month.

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